- The National Association of Realtors announced commission reductions as part of a $418 million settlement.
- Previously, fees of 5% to 6% of the home purchase price were standard.
- Cutting fees could lead to lower home prices, but it could also drive some brokers out of the industry.
The entire real estate industry could change in favor of homeowners, thanks to a settlement by one of the most powerful real estate agent groups in the country.
In a series of class-action lawsuits, homeowners accuse the National Association of Realtors of conspiring to rip-off both buyers and sellers by charging unreasonably high fees.
NAR announced Friday that it will pay $418 million in damages to resolve these lawsuits. The New York Times, which obtained a copy of the signed agreement, reported that in a major win for consumers, they also agreed to amend rules regarding fees.
The plaintiffs also argued that the standard 5% to 6% rates charged by most real estate agents violate antitrust laws and keep home prices high. Experts say home prices across the country could fall as a result if home buyers and sellers no longer have to pay so much to brokers.
“This is the biggest change to hit the real estate industry in more than 30 years,” Toby Schifsky, vice president of real estate education company Kaplan, said in a statement. “While this may lead to lower prices for homebuyers, especially important at a time when mortgage rates are rising, it is important for buyers to demonstrate their worth to prospective buyers. “It's going to be essential for representatives and agents. This is going to have a bigger impact on the buyer than anyone else in the process.” ”
In other countries, agency fees are lower, typically in the range of 1% to 3%, the newspaper said.
The settlement will affect home sellers, who will no longer be forced to pay such high commissions to real estate agents, who typically split their fees 50-50 with buyers' agents.
For decades, the way real estate agents earned their commissions has been a tortuous path.
Here's how it works: The buyer pays the price of the home to the seller, the seller pays the real estate agent about 5% to 6% of the final sales price, and the real estate agent splits that money 50-50 with the buyer's agent. . This tortuous system essentially forced sellers to offer the highest commission rates to attract buyer agents.
“Individual sellers may be reluctant to sell their property given the risk that offering lower commissions will cause brokers to drive buyers to other properties,” Robert A. Brown, a partner in the antitrust practice at Cohen Milstein, said in a statement. “They often feel powerless to negotiate a better deal.”
In many cases, sellers didn't even realize they could negotiate that fee.
But now that entire system is out of bounds, and agents may be forced to lower their rates to stay competitive.
This is not good news for brokers, with some experts saying they may be forced to exit the industry.
Brian Boero, CEO of 1000W, an agency that advises real estate brokers and mortgage lenders, said: “Some agents are unable to demonstrate, let alone clearly explain, their value. It's going to come out,” he previously told Business Insider. “Those people will probably go out of business soon.”
NAR declined to comment but referred BI to its press release.
“NAR exists to serve our members and American consumers, and while this settlement comes at a significant cost, the benefits to our industry outweigh that cost,” NAR Chairman Kevin Sears said in a statement. I believe it's worth it.”
NAR said in a press release that it plans to pay the settlement to plaintiffs over the next four years. The settlement still requires court approval. Lawyers expect the lawsuit to be filed in the coming weeks, according to the Times.
March 15, 2024: A previous version of this article stated that NAR's rules set the standard commission rate at 5-6%. Updated to reflect that prices are standard.
